TreeHouse lowers guidance as margins fall short

by Eric Schroeder
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OAK BROOK, ILL. — The continued lag in company pricing actions in response to higher freight, transportation, packaging and other related commodity costs at TreeHouse Foods, Inc. has led the company to lower its full-year 2011 adjusted earnings-per-share guidance to a range of $2.90 to $3 from $3 to $3.08 previously.

In a June 23 conference call with analysts, Sam K. Reed, chairman and chief executive officer of TreeHouse, said the lag will result directly in second-quarter margins that will fall well short of the company’s plans and market expectations.

“While the quarterly miss is significant, we regard this as a temporary phenomenon that will be corrected in short order,” Mr. Reed said.

He noted input inflation has surged as stepped-up export demand for grains and oilseeds and a spurt in crude oil prices have combined to push projected cost increases for fiscal 2011 to $160 million from $110 million.

“We have been hardest hit in commodities, packaging and energy sectors, where forward hedges are neither readily available nor affordable,” he said.

Mr. Reed said while TreeHouse may be “somewhat battered and certainly chagrined,” the company believes the worst is behind and the market for private label grocery products remains robust.

“Our core private label segment is posting excellent organic growth,” Mr. Reed said. “Our big wins program, now at $120 million and growing, should further accelerate top-line growth. The Sturm and S.T. Specialty acquisitions have opened new growth vistas for value-added private label. Our capital structure is stable, generating sufficient cash flow to fund internal expansion, pay down debt and finance the next generation of acquisitions.

“Our deal team is actively engaged in the pursuit of strategically attractive acquisition opportunities. And lastly, rather than falling into a funk, our team is reenergized and doubly dedicated to resuming our journey of extraordinary growth in customer brands and custom products.”

TreeHouse’s share price, which closed at $58.50 on June 22, opened sharply lower at $50.68 on June 23 after the announcement was made.

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